Chart of the Month – September 2018

Capitalism as Destructive Obsolescence

Top 10 American companies in 1917, 1967 and 2017

X-Axis: Market Capitalization of company; Y-Axis ranking of each company; Bubble: % of aggregate Market Cap

Capitalism as a socio-economic system is, by its very nature, both creative and destructive. This duality has sped up as global economies become more and more innovative and create more innovative tools to accelerate production. It is interesting to note how technology has rendered the largest companies in the world virtually obsolete over a fifty year period. Earlier this year the last stock that was amongst the original Dow 12 was dropped from the index: that was General Electric. The only stock in the index that remains from the index at the time of the Crash of ‘29 is Exxon Mobil which in those days was Standard Oil of New Jersey. Companies however are reflective of the industries within which they operate and in 1917 the top 10 companies in the USA were drawn from ten different industries. Today’s top 10 consists of five companies in technology and three in finance. This in-built obsolescence of companies is very relevant to investors who must continually be on the lookout for failing industries, which will take major companies like Sears into bankruptcy but must also look for the rising stars in the “new economy”.